The Impact of Split Ratings on Bond Yields



We examine the relationship between split bond ratings and bond yields at the notch level for publicly issued corporate bonds. For bonds whose ratings are split by two-notches, the yields are 16 basis points higher than yields on non-split rated bonds with midpoint ratings.  For bonds with rating split by one-notch, the yields are consistently higher than the midpoint of the yields for higher (or superior) and lower (or inferior) rated bonds.  Our findings suggest that investors demand higher yields for split rated bonds, possibly to compensate for the higher information risk of such bonds.
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Ingolf Dittmann